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BANKING Introduction Banking has become a part and parcel of our day-to-day life. Today, banks offer an easy access to a common man. They carry out variety of functions apart from their main functions of accepting deposits and lending. Banking is a service industry. Banks provide financial services to the people, business and industries. Merchant banking, money transfer, credit cards, ATM's are some of the important financial services provided by the modern banks. Indian banking system, over the years has gone through various phrases after establishment of RBI in 1935 according to RBI Act, 1934 , during British rule, to function as Central Bank of the country. Earlier Central Bank's functions were being looked after by the Imperial Bank of India. The development of 'Banking’ is evolutionary in nature. There is no single answer to the question of what is Banking. Because a bank performs a multitude of functions and services which cannot be comprehended into a single definition. For a common man, a bank is a storehouse of money, for a businessman it is an institution of finance and for a worker it may be a depository for his saving. It may be explained in brief as "Banking is what a bank does". But it is not clear enough to understand the subject in full The Oxford dictionary defines a bank as "an establishment for the custody of money which it pays out on a customer's order'. But this definition is also not enough, because it considers the deposit lending and repayment functions only. The meaning of a bank can be understood only by its functions just as a tree is known by its fruits, As any other subjects, it has its own origin, growth and development.
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Evolution It is interesting to trace the origin of the word ‘Bank’ in the modern sense to the German word "Banck" which means, heap or mound or joint stock fund. From this, the Italian word "Banco" meaning heap of money was coined. Some people have the opinion that the words "bank” is derived from the French words, "bancus" or "banque" which means a "bench". Initially the bankers, the Jews in Lombardy, transacted their business on benches in the market place and bench resembled the banking counter.
Development of Banking in India Banking in India is indeed as old as Himalayas, but the banking functions became an effective force only after the first decades of 20 th century. To understand of the history of modem banking in India. We need to refer to the English "Agency Houses" established by the East India Company, These Agency Houses, were basically trading firms and carrying on banking business as part of their main business. Because of this dual functions and lack of their own capital they failed and vanished from the scene during the third decade of 18th century.
Meaning and Definition of Banks A bank is an institution which deals in money and credit. Thus, bank is an intermediary which handles other people's money both for their advantage and to its own profit. But banks are not merely a trader in money but also an important manufacturer of money. In other words, a bank is a factory of credit According to 5(b) defines banking as "accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawals by cheque, draft and order or otherwise". Section 5
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(1) (c) defines banking company as "Any company which transacts the business of banking in India". The Oxford Dictionary defines a bank as "an establishment for the custody of money, which it pays out on a customer's order". Section 5(c) of Banking Regulation Act,1949 has been defined banking as, "One which transacts the business of banking which means the accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”.
Features of banking The following are the essential features of banking: 1. Dealing in money- The banks accepts deposit from the public and advances them as loans to the needy people. The deposits may be of different type current, fixed and savings accounts. The deposits are accepted on various terms and conditions 2. Withdrawals Deposits-The deposits (other than fixed deposits) made by the public can be withdrawals by cheques, draft or otherwise i.e. the bank issue and pays cheques. The deposits are usually withdrawal on demand 3. Dealing with credit-The banks are the institutions that can create credit i.e. creation of additional money for lending. Thus, creation of credit is the unique feature of Banking 4. Commercial in Nature- Since all the banking functions are carried on with the aim of making profit, it is regarded as a commercial institution 5. Nature of an agent- Besides the basic functions of accepting deposits and lending money as loans, banks possess the character of an agent because of its various agency services
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Main Functions of Banks The following are the main functions of bank: 1. Accepting Deposits- Tapping the savings of the public by means of deposits in one of the major functions of a bank. When a bank accepts deposits, it is said to borrow money, as a borrower, the bank has to safeguard its position. Therefore before opening an account a bank has to observe certain general precautions. Every deposit is the property of the bank. The bank is responsible for the safety of the deposit. A bank may its discretion in allowing or not allowing a person to deposit and it cannot be questioned 2. Lending Money- Banking is essentially a business dealing with money. A bank has to invest funds in different was to earn income. The bulk of income is derived from lending funds, Banks provide loans and advances to traders, industrialists against the security of some assets and they also advance loans to the people on personal security. In both the cases the banks run the risk of default in repayment. Therefore, the banks have to follow a sound lending policy. Banks in India have responsibility of fulfilling social obligations. Therefore, in order to protect their own interest as well as national interest the following principles should be followed by the banks
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INSURANCE Introduction Risk is there at every walk of life, risk also endangers life itself. In the same way all financial deals, as well as possession of money & property goods etc. are fraught with the element of risk. For an example, money may be stolen, or goods robbed or destroyed or an employee may misappropriate. A man may be killed in an accident or may die of a fatal disease. The loss arising out of these risks may be quite substantial and in extreme cases, it may be so heavy that business may be crippled. The businessman and the owners of the property discovered that if they got together and contributed a relatively small amount to a common pool, the total amount so contributed would be sufficient to compensate any of them for the loss arising due to such causes All risks do not actually occur at all times and hence it imposable to calculate probable chances of any particular risk materializing. It is quite that all the people do not face risks at the same time, thus, the transfer of risk to another i.e. the insurer is in fact a pooling of risks. If insurance did not exist, each individual would have to bear the losses on his own. Insurance in effect means that each one in the pool undertakes to bear a portion of the loss. Such an agreement has proved to be advantageous to everyone as it is uncertain as to who suffer the loss. Insurance is a financial service for collecting the saving of the public and proving them with risk coverage. The main function of Insurance is to provide protection against the possible chances of generating loss. It eliminates worries and miseries of losses by destruction of property and death. It also provides capital to the society as the funds accumulated are invested in productive heads
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Principles of Insurance An insurance contract made without due consideration to these principles is treated as void, not enforceable by law these principles are as follows:1. Principles of Utmost Good Faith- One of the basic & primary principles of insurance is utmost good faith. It states that insurance contract must be made in absolute good faith on the part of both the parties. The insured must give to the insurer complete, true & correct information about the subject matter of the insurance Material fact should not be hidden on any ground. This principle is applicable to all types of insurance contracts. Insurance is for protection & not for profit & hence correct information must be given to the insurance company. 2. Principle of Insurable Interest- This principle suggests that the insured must have insurable interest in the object of insurable. A person is said to have such interest when the physical existence of the object of insurance gives him some gain but which he is likely to lose by its non-existence In other words, the insured must suffer some kind of financial loss by the damage to the subject matter of insurance. Ownership is the most important test of insurance interest. Every individual has insurable in his own life. Insurance contracts without insurable interest are void, Insurable interest is not a sentimental concepts but a pecuniary interest. 3. Principle of Indemnity- This is one important principle of insurance; this principle suggests that insurance contract is a contract for affording protection and not for profit making. The purpose of insurance is to secure compensation in care of loss or damage
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Indemnity means security against loss, the compensation will be paid in proportion to the loss actually occurred. This amount of compensation in the insurance contract is limited to the amount assured or the actual loss whichever is less. The compensation will not be more or less than the actual loss 4. Principle of Subrogation- This principle is an extension and a corollary of the principle of indemnity. It is applicable to all the contracts of indemnity, It is applicable to all rights and remedies which the assured would have enjoyed regarding the said loss. When the compensation is paid for the total loss, all the rights of the insured in respect of the subject matter of insurance are transferred to the insurer. The assured will not realize more than the actual loss suffered 5. Principle of Contribution- There is no restriction as to the number of times the property can be insured. But on the occurrence of the loss can be realized from one insurer or all the insurers together, this principle is, however, not applicable to life insurance contract 6. Mitigation Loss- According to this principle every insured should all the necessary steps to minimize the loss. E.g. if a trader takes out a marine policy for the goods being shipped from Goa to Mumbai and if the storm takes place due to which there takes might be risk of ship sinking. According to this principle, the ship can be saved by throwing away some of the goods in order to reduce the weight on the ship 7. Risk must Attach- The subject matter should be exposed to risk, e.g. for goods placed in godown marine, insurance policy cannot be taken. However, goods may be insured against fire or theft
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8. Causa Proxima- The principle of causa proxima means that when a loss has been caused by the series of causes, the proximate or the nearest cause should be taken into consideration to determine the liability of the insurer. The principle states that to ascertain whether the insurer is liable for the loss or not, the proximate and not the remote cause must be looked into. For an example, a cargo ship got a hole, due to negligence of the master and as a result sea water entered and cargo was damaged
Essential of an Insurance contract-
Like other contracts, the contract of
insurance has the following: 1. There must be an agreement between two parties who are competent to enter into a contract 2. The agreement must be in writing and the parties must give free consent to terms and conditions 3. The event must be subject to risk or otherwise it will amount to betting 4. The event must also involve some element of uncertainty either as regards in time or with respect to its occurrence 5. The risk should not to very small 6. The cost of insurance should not be prohibitive. Low cost can be achieved if the number of risks insured is larger
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BANCASSURANCE Definition Bancassurance means selling insurance product through banks. Banks and insurance company come up in a partnership wherein the bank sells the tied insurance company's insurance products to its clients.
Introduction The concept of bancassurance was evolved in Europe. Europe leads the world in Bancassurance market penetration of banks assurance in new life business in Europe which ranges between 30% in United Kingdom to nearly 70% in France. However, hardly 20% of all United States banks were selling insurance against 70% to 90% in many Western European countries. In Spain, Belgium, Germany and France more than 50% of all new life premiums is generated by banks assurance. In Asia, Singapore, Taiwan and Hong Kong have surged ahead in Bancassurance then that with India and China taking tentative step forward towards it. In Middle East, only Saudi Arabia has made some feeble attempts that even failed to really take off or make any change in the system. The motives behind bancassurance also vary. For Banks, it is n means of product diversification and source of additional fee income. Insurance companies see bancassurance as a tool for increasing their market penetration and premium turnover. The customer sees bancassurance as a bonanza in terms of reduced price, high quality products and delivery at the doorsteps. With the liberalization of the insurance sector and competition tougher than ever before, companies are increasingly trying to come out with better innovations to stay that one-step ahead. Progress has definitely been made as can be seen by
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the number of advanced products flooding the market today - products with attractive premiums, unitized products, unit-linked products and innovative riders. But a hitherto untapped field is the one involving the distribution of these insurance products. Currently, insurance agents are still the main vehicles through which insurance products are sold. But in a huge country like India, one can never be too sure about the levels of penetration of a product. It therefore makes sense to look at well-balanced, alternative channels of distribution. Nationalized insurers are already well established and have an extensive reach and presence. New players may find it expensive and time consuming to bring up a distribution network to such standards. Yet, if they want to make the most of India's large population base and reach out to a worthwhile number of customers, making use of other distribution avenues becomes a must. Alternate channels will help to bring down the costs of distribution and thus benefit the customers.
Need for bancassurance in India Researches and present day statistics speak about the need of a wellequipped financial structure for a country that helps it to grow economically. The financial resources in the hands of people should be channelized in effective manner so as to increase the returns from the basic financial structure of nation and also the quality of living of people. Insurance policies are instruments or products that play major role in upholding the financial structure of developed countries. Bancassurance is one of the most profitable partnerships banks have, as the name implies, with insurance companies. This means insurance companies sell their products via bank’s online and offline channels to bank clients. In return,
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banks get fees or commissions so there is a win – win relationship have been set up between the two parties. Selling an insurance product is not an easy job, selling an insurance product to Millennial could be even more challenging. Though the teething phase of insurance, one may say is just past, a desirable foothold is yet to be found. With growth in number of middle class families in the country, RBI recognized the need of an effective method to make insurance policies reach people of all economic classes in every corner of the nation. Implementing bancassurance in India is one such development that took place towards the cause. The need and subsequent development of bancassurance in India began for the following reasons: 1. To improve the channels through which insurance policies are sold/marketed so as to make them reach the hands of common man 2. To widen the area of working of banking sector having a network that is spread widely in every part of the nation 3. To improve the services of insurance by creating a competitive atmosphere among private insurance companies in the market
Model of Bancassurance The Bank
Insurance
Model (BIM),
also
sometimes
known
as Bancassurance or Allianz, is the partnership or relationship between a bank and an insurance company, or a single integrated organization, whereby the insurance company uses the bank sales channel in order to sell insurance product’s, an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank's client base.
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1. BIM allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff and employees as well 2. Bank staff and tellers, rather than an insurance salesperson, become the point of sale and point of contact for the customer. Bank staff are advised and supported by the insurance company through product information, marketing campaigns and sales training 3. The bank and the insurance company share the commission. Insurance policies are processed and administered by the insurance company 4. This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers 5. Bancassurance, the sale of insurance and pensions products through a bank, has proved to be an effective distribution channel in a number of countries in Europe, Latin America, Asia and Australia 6. BIM differs from Classic or Traditional Insurance Model (TIM) in those TIM insurance companies tends to have larger insurance sales teams and generally work with brokers and third party agents 7. An additional approach, the Hybrid Insurance Model (HIM), is a mix between BIM and TIM. HIM insurance companies may have a sales force, may use brokers and agents and may have a partnership with a bank 8. In India banking and insurance sectors are regulated by two different entities. The banking sector is governed by Reserve Bank of India and the insurance sector is regulated by Insurance Regulatory and Development Authority (IRDA)
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9. Bancassurance, being the combination of two sectors comes under the purview of both the mentioned regulators. Each of them has elaborate and descriptive rules, restrictions and guidelines
RBI has the following conditions and restriction which are as under 1. Any scheduled commercial bank would be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation. The subsidiaries of banks will also be allowed to undertake distribution of insurance products on agency basis 2. Banks which satisfy the eligibility criteria mentioned as under would be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The criterion are net worth being at least INR 300 Cr., CRAR being at least 10%, reasonable NPA, performance of subsidiaries (if any) should be satisfactory and there should have been net profit for at least 3 consecutive years
Corporate Agency Regulations Banks can act as corporate agents for only one life and one non-life insurance company for a commission, as per the current regulatory framework set up by IRDA. The banks are not eligible for any payout other than commission. It is also mandated that banks should also observe code of conduct prescribed towards both customer and the principal who is the insurer
Broker Route-
Banks cannot become brokers, as regulations require
brokers to be exclusively engaged in insurance broking. RBI does not allow banks to promote separate insurance broking outfits. Even otherwise MNC
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banks or their parent corporations are not inclined to promote broking subsidiaries in view of FDI cap of 26%.
Why Banks are Highly Motivated to Enter Insurance Business Now? 1. There are several reasons why banks should seriously consider Bancassurance, the most important of which is increased return on assets (ROA). One of the best ways to increase ROA, assuming a constant asset base, is through fee income 2. Fee-based selling helps to enhance the levels of staff productivity in banks. This is a key driver for raising motivation among bank workers 3. Banks those effectively cross-sell financial products can leverage their distribution and processing capabilities for profitable operating expense ratios 4. Overstaffing problem can mitigated without resorting to drastic and politically unacceptable solutions like large scale firing 5. Banks seek to retain customer loyalty by offering them an expanded and more sophisticated range of products (than simple bank deposits of few varieties.) 6. Insurance distribution will increase the fee-based earnings of banks 7. Selling an insurance product via Digital Banking could be even more challenging. The very first thing that comes to mind is selling the insurance product as a part of banking package or bundle 8. For example, selling a life insurance together with a mortgage product or car insurance with car loan. 9.
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Bancassurance A win-win solution BANK Customer Retention
INSURANCE Revenue and channel diversification
Satisfaction of more financial needs Quality customer access under the same roof Revenue diversification Quicker geographical reach More profitable resources utilization Enriched work environment
Creation of brand equity
Establish sales oriented culture
Establish a low cost acquisition channel
Leverage service synergies with bank
Collaboration is the key 1. In their natural and traditional roles and with their current skills, neither banks nor insurance companies could effectively mount a Bancassurance start-up alone. Collaboration is the key to making this new channel work 2. Banks bring a variety of capabilities to the table. Most obviously, they own proprietary databases that can be tapped for middle-market warm leads. In addition, they can leverage their name recognition and reputation at both local and regional levels 3. Strong players also excel at managing multiple distribution channels, crossselling banking products, and using direct mail. However, most banks lack experience in several areas critical to successful Bancassurance strategies: in particular, developing insurance products, selling through face-to-face "push" channels underwriting, and managing long-tail insurance products
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4. Where banks usually fall short, a strong insurer will excel. Most have substantial product and underwriting experience, strong "push" - channel capabilities, and investment management expertise. On the other hand, they tend to lack experience or ability in the areas where banks prevail 5. They have little or no background in managing low-cost distribution channels; they often lack local and regional name recognition and reputation; and they seldom possess access to or experience with the middle market
Benefits of Bancassurance 1. Benefits to Consumersi.
Comprehensive financial advisory services under one roof. i.e., insurance services along with other financial services such as banking, mutual funds, personal loans etc.
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ii.
Enhanced convenience on the part of the insured
iii.
Easy accesses for claims, as banks are a regular go
iv.
Innovative and better product ranges
v. vi. vii.
Better customer retention and stronger relationships Clear competitive advantage in the rural areas Possibility that the insurer’s account as well as the accounts from the claimants will remain with the bank
viii.
Insurance products can augment the value of the banking products and services
ix.
Banks are in better position to offer complete integrated financial solutions Opportunity to make better informed choice in financial matters like selection of insurance cover
x.
Ease of renewals through of executing standing instructions
2. Benefits to Insurance Companyi.
Captures premium of bank financed assets
ii.
Greater geographical reach through banks’ network at relatively lower cost
iii.
Access to banks customers
iv.
Gaining credibility in customer mindset by associating with banks
v.
Ease of renewals and lower lapse incidence
vi.
Potential for cross selling
vii.
Potential for up-selling including depth and width
viii.
Selling personal lines of insurance products to banks, depositors and other customers
ix.
Introducing co-branded products like Fire Policy for Home Loans
x.
Attracting walk-in customers in bank network
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3. Benefits to Banksi. ii.
Banks get more non-interest income Bank gets new customers and better penetration in existing customer base
iii.
Increased association with the bank
iv.
Branch achieves profitability target
v.
Secure an additional and more stable stream of income through diversification into insurance and reduce their reliance on interest spreads as the major source of income
vi. vii.
Leverage on their extensive customer bases Sell a whole range of financial services to clients and increase customer retention
viii. ix.
Reduce risk-based capital requirement for the same level of revenue Work towards the provision of integrated financial services tailored to the life-cycle of customers
x.
Access funds that are otherwise kept with life insurers, who sometimes benefit from tax advantages
WHY IS BANCASSURANCE MORE SUITED TO LIFE INSURANCE PRODUCTS?
1. The
main reason may be the complementary nature of life insurance and
banking products: bank employees are already familiar with financial products and quickly adapt to selling insurance-based savings or pension products
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2. On
the other hand, the non-life market requires special management and
selling skills, which are not necessarily prevalent in bancassurance. In addition, such competencies require significant investment in training and motivation, and therefore additional costs
3.
Life insurance products are generally long-term products, which require customers to have complete confidence in the institution that invests their money
4. And we now know that, in many countries, banks have a better image and are more trusted than insurance companies
5. Bank advisers can use their knowledge of their customers’ finances to target their advice towards specific needs. This is a major advantage in life insurance and less important in personal injury insurance
6. Some professionals also refer to the claims management aspect of personal injury insurance, which could have a negative impact
Banks have some in-built advantages in some of these areas1. Banks
can put their energies into the small-commission customers that
insurance agents would tend to avoid
2. Banks’ entry in distribution helps to enlarge the insurance customer base rapidly. This helps to popularize insurance as an important financial protection product
3. Bancassurance helps to lower the distribution costs of insurers
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Bancassurance training for bank employees: The bank employees will need to be trained in the following aspects of the insurance business:
1. Features of the insurance products sold 2. How to identify and approach a potential customer 3. Basic insurance needs 4. Handling basic objections 5. Other distribution channels and products 6. Expected roles 7. Procedures 8. Remuneration and incentive schemes 9. Cultures
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NEED FOR A CASE STUDY Today’s banking business is not the one we have seen in the past. It has become much more diversified. With the shift in the customer preferences from deposits to investments, intense competition etc., and the banks saw their profit margin declining. Thus it has become imperative for the banks to retain the customer by providing more value added services under one roof as well as to find alternative ways to generate more income. As bancassurance provides the best possible solution to all these, most of the banks nowadays have started selling insurance products to its customers. HDFC bank is also having a tie up with its subsidiary company HDFC Standard Life Insurance for selling Life insurance products to its retail customers. Hence there is a need for the study to know whether HDFC bank has been benefited out of bancassurance by way of financial analysis and to suggest the areas where they can make use of and get close to the bank if they wish to.
STATEMENT OF THE PROBLEM To understand the financial impact of bancassurance in HDFC bank and to suggest the ways and means to improve the existing performance by way of collecting responses from the customers.
BENEFITS TO THE ORGANIZATION 1. Through the study the bank can know its financial performance in bancassurance and whether it is contributing to the overall progress of the bank or not
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2. The study would enable HDFC bank to know the general opinion of customers about insurance and bancassurance so as to know whether any awareness needs to be created about the same 3. The study would enable HDFC bank to know how far their initiatives in promoting HDFC standard life Insurance products have reached its customers 4. It would also enable the bank to know whether they have established a strong relationship with the customers, as it is important for bancassurance 5. It would also enable the bank to know the number of persons who are planning to take a life insurance policy in their near future so that it can take the advantage of the same 6. The bank can also know the willingness of the customers in accepting HDFC bank as their distribution channel in case of obtaining HDFC standard Life Insurance policy in future 7. Finally, it provides the opportunity for the bank to know the areas where they need to give much emphasis and uplift themselves in order to occupy a key role in the area of bancassurance
SCOPE OF THE STUDY 1. The study focuses on the financial performance of HDFC bank in bancassurance and its contribution to the overall progress of the bank with respect to life insurance alone 2. The study analyses the awareness of the customer and the viewpoints of the customer about insurance as well as bancassurance 3. The study also measures the initiatives taken by HDFC bank in endorsing HDFC Standard Life insurance products
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4. The study also throws light on the relationship building by HDFC bank with its customers, as it is the deciding factor for considering the bank as a one- stop shop for all their financial solution 5. It also indicates the persons who are willing to take life insurance policy in the immediate future and the reasons for taking the same 6. It also pinpoints the willingness of the customer in accepting HDFC Bank, as their distribution channel, in case of their choice is HDFC standard Life Insurance for obtaining a policy
OBJECTIVES OF THE STUDY 1. Primary objective-
i.
It is to make an analysis on the financial performance of HDFC bank in bancassurance with specific reference to life insurance and to suggest the ways and means to improve the existing performance by way of collecting responses from the customers
2. Secondary Objectivesi.
To analyze the financial performance of HDFC bank in bancassurance and its contribution to the overall progress of the bank using ratio analysis
ii.
To analyze the initiatives taken by the HDFC bank in endorsing the HDFC Standard Life Insurance products
iii.
To assess the relationship building factors of HDFC bank, this is significant for bancassurance
iv.
To know the customer preferences in selecting HDFC bank as a distribution channel in case of their willingness to obtain HDFC Standard Life Insurance policy in future
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LIMITATIONS OF THE STUDY1. Time has played a biggest constraint that the research could not be carried out comprehensively as the duration of the study was only 4 months 2. As the research contains the Secondary data for making a financial analysis the accuracy and reliability of the analysis depends on reliability of figures derived from financial statements 3. The sample size for collecting the primary data was meager as it includes only 100 respondents, hence the conclusion would not be a universal one 4. Personal biases and prejudices of the customers may also affect the study. In spite of the limitations, the study was effective in analyzing the performance of HDFC bank in bancassurance with specific reference to life insurance
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SOME OF THE BANCASSURANCE TIE-UPS IN INDIA BANKING COMPANY
INSURANE COMPANY
Bank of Rajasthan, Andhra Bank, Birla Sun Life Insurance Co. Ltd. Bank of Muscat, Development Credit Bank, Deutsche Bank and Catholic Syrian Bank. State Bank of India Life insurance State Bank of India. company Ltd. ICICI bank, Bank of India, Citi Bank, ICICI Prudential Life Insurance co. Ltd Maharashtra Bank, Allahabad Bank. HDFC Bank, Union bank of India, HDFC Standard Life Insurance co. Ltd. Saraswat Bank. Life Insurance Corporation of Corporation Bank, India. Indian Overseas Bank, Centurion Bank, Satara District Central Co-operative Bank, Janata Urban Co-operative Bank, Mahila Sahkari Bank, Vijaya Bank, Oriental Bank of commerce. Canara Bank, Lakshmi Vilas Bank, Dabur CGU Life Insurance American Express Company Pvt. Ltd Company Pvt ; Ltd. Bank.
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RECENT TRENDS OF BANCASSURANCE 1. Bancassurance has not only targeted the mass market but has also carefully begun to segment the market which has resulted in the tailor‐made or rather perfect products for each segment 2. Some bancassurance focus exclusively on distribution. In some markets, face‐to‐face contact is preferred which proves to be a favorable arrangement for the development of bancassurance business 3. Initially banks opt for either “referral models” or “corporate agency.” 4. Banks are offering space in their own premises to accommodate the insurance staff for selling the insurance products or giving access to their client’s database. Insurance companies can use this opportunity to increase their sale 5. Nowadays banks are campaigning and marketing the insurance products across the globe. Number of banks in India act as “corporate agents‟ to insurance company
Recent tie up of a Bank and an Insurance companyBancassurance 1. The news was from NEW DELHI that the country’s largest insurer Life Insurance Corporation of India (LIC) on Thursday has signed an agreement with private sector lender Axis Bank making it its bancassurance partner wherein the bank will distribute LIC’s products to its customers This is one of the biggest tie-ups announced after financial sector regulators liberalized norms governing the sale of insurance products by banks, called
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Bancassurance, under which lenders were allowed to sell products of multiple insurance companies Bancassurance is a model where the insurance company joins hands with a bank in order to sell its products. This is also known as ‘channel sales’ in banking parlance In the preliminary phase, the bank will distribute LIC’s life insurance products across its branches in West Bengal, Bangalore and Haryana – Panchkula. Additionally, it will also provide post sales services such as premium collection and renewal of policies. “The coming together of the two major reputed organizations would enable them to combine and utilize the synergies for enhancing customer satisfaction,” LIC executive director for bancassurance Mukesh Gupta said. In a statement, LIC said that as on June 30, 2016, Axis Bank had a network of 3,006 domestic branches and extension counters situated in 1,882 centers From April 1, norms have been revised under which corporate agents like banks are allowed to tie-up with three life, three non-life and three standalone health insurance companies. Earlier, under the bancassurance model where banks sold insurance meant that they could only sell products of one life, one non-life and one standalone health insurer. Apart from LIC, Axis Bank also has a tie-up with Max Life Insurance in the life insurance space. Rajiv Anand, executive director and head retail banking, Axis Bank said that banks have increased roles in insurance distribution.“Over the last five years the life insurance business at Axis Bank has grown at a CAGR of over 25 percent. The
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partnership with LIC would enable us to further expand our existing bouquet of offerings and put forth a compelling proposition for our customers,” he said. Experts says that this move of LIC will help them to gain momentum since over the last few years most of LIC agents has decided to quit selling its products.
2. Private life insurer Tata AIA Life and Citibank entered into a bancassurance partnership in India to serve insurance needs of over 18.4 million households in the country. "This partnership aims to enhance the value proposition to Citibank's customers. I am confident that with our customized products, unique technology support for sales and services, and Citibank's expert relationship managers, we will enhance customer experience to a new level," Tata AIA Life CEO and Managing Director Naveen Tahilyani told reporters. This is a growing base of approximately 18.4 million households across 14 cities in India that has a large protection gap, estimated at over Rs 150 trillion, he said. "In India, for every Rs 100 needed for a family's income protection, only Rs 7.4 is currently provided for, leaving a protection gap of 92.6 percent," he pointed out.
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SWOT ANALYSIS OF BANCASSURANCE 1. Strengths: i.
Accurate Customer Details- The accuracy in customer details can do wonders. The data generated by many sources lacks accuracy. But the accuracy of data is very high in bancassurance. This helps in targeting right segment of customers for right policy. The communication address and phone number of customers are updated on time and avoids waste of time and resources in communication
ii.
Insurance Is Mandatory for Loans- The bank whenever offers loan bound to issue appropriate class of insurance too. It is legally mandatory for a bank to club loan products with relevant insurance. For example, life insurance is required for personal loan. In case of property insurance, fire insurance is mandatory. Similarly, for different classes such as cattle insurance, Agriculture insurance etc. demanded while selling the loan products for the same
iii.
Customized Policies at Lower Premium- The insurance policies are customized for bancassurance channel. The statistical analysis of customer data helps to devise right set of policies for different customers. The features and premium of insurance products designed for bancassurance channel comparatively better than any other channel. In fact, the insurance policies are lucrative in bancassurance channel
iv.
Issuance of Very Special Class Insurance- The risky class of businesses will not be issued as it affects the profit of the insurer. Some of the risky classes are weather insurance, cattle insurance etc. if the customer approaches through bancassurance channel then the policies will be issued.
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In other words, the risky policies are issued only bancassurance customer and not for others v.
Good Numbers of Leads to Cross Sell- The bank customers can be targeted to sell insurance policies. The existing customer database can be used to generate leads. As the number of sales leads increase the sale closures also increases. Thus the more leads ends in more sale closure. The banks can cross sell insurance policies to its customers.
vi.
Services under One Roof for Customers- The customer can enjoy convenience of core banking products and insurance policies under one roof. Otherwise the customer needs to run around in search of different financial products to meet his needs time to time
vii.
Relationship Based Business Model- The insurance is considered as concept selling. The sales executive cannot expect immediate sale closure. Each phase of the sales process consumes time. The time taken to followup etc. is lengthy. The success of insurance sales is purely based on relationship between the seller and the buyer. The bank employees can turn the rapport created as policies
viii.
Important Source of Income- The fee-based services increase the productivity of the employee as well as the bank branch. The existing resources can be utilized to sell financial products. Otherwise the insurance company needs to spend on resources. It is easy to train the bank employees as they are graduates. Banks due to competition loses profit incore banking products and it can be compensated in selling insurance products
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2. Weakness
i.
Lack of Initiatives from Bank Employees- The bank employees should sell insurance in addition to their routine works. They perceive insurance as a burden on their head without considering its benefits. They are not interested in attending insurance training and suffer without product knowledge. The initiatives to create rapport with insurance company employees are minimal
ii.
Dependency on insurer Employee- The bank employees are solely depending on bancassurance executive for sales. The sales executive can handhold in the initial time but not always. A bancassurance executive will be given handful of bank branches. It is difficult to manage and address all the requirements simultaneously
iii.
Customer Orientation is less- Most of the bank employees tend to sell the policies which can fetch maximum benefits for them in terms of commission volume. But they forget to fulfill the customer requirements. The bank employees are having profit orientation not customer orientation
iv.
Can Only Promote Tie-Up Insurer Products- As per IRDA guidelines, an insurer can have tie-up with any number of insurers. But a bank can have tie-up with only one life insurer and one non-life insurer. Thus a bank is restricted to sell only one bank products and cannot sell multiple insurers products simultaneously
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3. Opportunities
i.
Growing Channel of Marketing- The bancassurance generates significant proportion of premium for any insurer. The bancassuance is inevitable as it generates huge premium next to agency channel. The growth rate of bancassurance channel is exponential in recent years
ii.
Dual Support Model- The customer who takes the insurance policy through bancassurance channel is expected to enjoy dual support. In other words, support from bank as well as insurance company. The scope for better customer services is higher in bancassurance.
iii.
Tax Payers Can Be Targeted- Every year during March, the sale of life insurance reaches its peak. At that time selected customers referably (tax payers) can be targeted for single premium policies. In a nutshell the bank employees should be prepared to allot time for insurance in March
iv.
Sales Can Be Driven By New Campaigns- The insurers can devise new campaign to motivate bank employees for selling the insurance policies. The winner of each campaign can be awarded with foreign tour, gold, cash prizes etc. thus the inner urge to sell more and win can be increased
v.
Scope of Premium Payment through EMI’s- As per IRDA regulations, the premium for non-life insurance cannot be paid in installments. But the banks can pay the premium to insurer on behalf of the customer and can collect premium from customers in installments. Thus the bank can extend the comfort of premium installments to its customers
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4. Treats
i.
Insurance Becomes Additional Responsibility- The bank employees should sell insurance in addition to core banking activities. During the introductory phase the burden will be extreme for them. But the bank employee will be more comfortable in selling insurance as the time progresses. The friction is more in the initial phase of the bancassurance tieup. Those successfully completes the first phase can really excel in selling insurance
ii.
Rapport Maintenance between Employees- The rapport between bank employee and sale executive is affected by variety of factors. Some of the important factors are: the initiatives taken by bank employees and executive, meticulous planning and allocation of time for selling insurance, the number of branches under the supervision
of executive etc. for
example, if an executive is allotted with more number of banks then the rapport level with each bank employee is limited due to lack of time.
iii.
Brand Equity and Poor Service- Generally, out of bancassurance tie-up, the brand equity of the insurer is improved. But the poor insurance service may dilute the bank brand equity. So the bank needs to analyze the insurer carefully before tie-up. Otherwise poor insurance service may hinder the sale of core banking products
iv.
Competitive Quotes from Others- Sometimes, the premium quote of other channels is comparatively lower than the bancassurance channel. More specifically, the direct marketing motor premium is cheapest one. In such cases, the customer prefers to buy from the channel which charges the lowest premium
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v.
New Bancassurance Proposals- The bancassurance channel has limited contractual term and can be renewed subsequently. Generally, each bank receives invitation from insurer to become bancassurance channel partner. If bank gets profitable contract than the current one then the present tie-up will come to an end
Distribution channels for bancassuranceThere many distribution channels of bancassurance but the most important are here below:
Distribution Channel 1. Carrer Agents 2. Special Advisor 3. Salaried Agents 4. Bank Employess 5. Internet 6. E- Brokerage
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1. Career agents- With suitable training, supervision and motivation can be
2.
3. 4.
5.
6.
highly productive and cost effective. Moreover their level of customer service is usually very high due to the renewal commissions, policy persistency bonuses, or other customer service-related awards paid to them Special advisers- Special advisers are highly trained employees usually belonging to the insurance partner, who distribute insurance products to the bank corporate clients. Usually they are paid on a salary basis and they receive incentive compensation based on their sales Salaried agents- Salaried agents have the same characteristics as career agents. The only difference in terms of their remuneration is that they are paid on a salary basis and they receive incentive compensation based on their sales Bank employees- Bank employees can usually sell simple products. However, the time, which they can devote to insurance sales, is limited and a limited target market, i.e. those customers who actually visit the branch during the opening hours. In many set-ups, the bank employees are assisted by the bank financial advisers. In both cases, the bank employee establishes the contact to the client and usually sells the simple product whilst the more affluent clients are attended by the financial advisers of the bank, which are in a position to sell the more complex products Internet- Internet banking is already established as an effective and profitable basis for conducting banking operation. Bancassurance is confident that internet banking will also prove an efficient vehicle for cross selling of insurance policies by bankers. Such an arrangement can prove beneficial for both banks as well as insurance company E-Brokerage- Banks can open or acquire an E- Brokerage arm and sell insurance products from multiple insurers. The changed legislative climate across the world should help migration of bancassurance in this direction. The biggest advantage of this medium is sale of policies, strong brands, easy distribution, effective mergers, etc. with internet capabilities
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Scope for Bancassurance in IndiaIt has become clear that as economy grows it not only demands stronger and vibrant financial sector but also necessitates providing with more sophisticated and variety of financial and banking products and services. As India is being considered one of the fast developing economy among the emerging market economies, financial sector has also grown much vibrant with the financial reforms. In fact, in recent years, it is surmised that even the ‘global economic growth’ hinges on growth prospects of the emerging economies like China and India to a greater extent. Significantly, Indian economy has recorded an average growth of over 8.5 per cent for the last four years, with macroeconomic and financial stability (RBI, 2006) and indications are that it may grow at even better rate in the near future provided there is good monsoon. Moreover, as India has already more than 200 million middle class populations coupled with vast banking network with largest depositor’s base; there is greater scope for use of bancassurance. In simple words, it is aptly put that bancassurance has promised to combine insurance companies’ competitive edge in the “production” of insurance products with banks’ edge in their distribution, through their vast retail networks.
1. Bankers’ Perspective- In the post reforms, the financial sector has more number of players of both domestic and foreign and the dividing line between the banks and non-banking financial institutions’ activities had considerably thinned down
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Banks’ response to these developments has been to migrate towards newer and non-traditional areas of operations especially relating to fee based activities / non-fund based activities. This is reflected in the sharp increase of proportion of non-interest income to total income in recent years. Although this was an unprecedented achievement in the Indian banking industry, diversification towards new areas such as bancassurance, promises greater scope for further enhancement in earnings with no menace of increase in NPA’s. India has a widely stretched and well established banking network infrastructure. It is this contrasting situation to assimilate the two systems by way of ‘bancassurance strategy’ to reap the benefits of synergy. This is an opportune time for both banking and the insurance sectors to come closer and forge an alliance for the mutual benefit. Both the regulators, i.e., RBI and IRDA have already pre offered appropriate policy guidelines and set in a congenial environment for such an endeavor.
2. Insurers’ Perspective- The success of any new business/ products/ service depends on how quickly and widely it reaches out to the customers/ potential customers. This holds good even for insurance products, the insurance companies can reach out the entire country at a greater speed with less cost through bancassurance. With the sweeping financial reforms in the insurance sector and the consequent opening up of this sector, all the private entities plunged almost simultaneously with a very little spacing of time and the entire insurance sector has been exposed to stiff competition. A number of foreign insurance companies in both life and non-life segment have entered by way of joint ventures with an equity stake of up to 26 per cent in the local companies.
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The foremost advantage for insurance company being that they will have the direct access to the large customer base, at relatively faster rate and at the lowest cost. Banks’ prior knowledge about the customers and their financial standing and other background is a gold mine for the insurers not only to tap the market but also would help to device the products that suits customers the most . For the insurance sector, it is now the most congenial policy environment to adopt bancassurance as IRDA has been encouraging banking institutions and the corporate sector to actively take part in the distribution system of insurance products. Similarly RBI as the regulator of banking system had smoothened the way for the banks to enter the insurance activities.
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Survey Analysis
Gender
40%
60%
Male
Female
My survey consists of 30 people of whom 18 are females and 12 are males.
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Age Group 12
10
11 10
8 6
6
Age Group
4
3
2
0 18-25
26-35
36-45
46 and above
The age group of these 30 people lies within 18-25 is 10, 26-35 are 11, 36-45 are 3 and 46 and above 6.
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Q1. Do you have a life insurance?
Do you have a life Insurance?
20%
Yes
No
80%
From the survey I came to know that 80% i.e. 24 people as a life insurance policy where as 20% i.e. 6 people don’t have the life insurance policy.
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Q2. Have you heard about bancassurance?
Have you heard about bancassurance?
20%
80%
Yes
No
24 people i.e. 80% are known to bancassurance but 6 people i.e. 20% are not known to bancassurance.
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Q3. How much risk does it involve in bancassurance?
18
16
16 14 12
9
10 8 6
5
4 2 0 High Risk
Low Risk
No Risk
5 people say there is high risk involved in bancassurance. 16 people say there is low risk involved in bancassurance and 9 people say that no risk is involved in bancassurance.
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Q4. Do you think bancassurance is more beneficial as compared to LIC?
10
9
9 8
8
8
7 6 5
4
4 3 2
1
1 0
Strongly Agree
Agree
Not decided
Disagree
Strongly Disagree
8 people in both category i.e. strong agree and agrees that bancassurance is beneficial than LIC. 9 people has still not decided whether bancassurance is beneficial than LIC. 4 people don’t think that bancassurance is beneficial than LIC and only 1 people feels that LIC is more beneficial than bancassurance.
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Q5. Which company will you prefer for bancassurance?
13% 30% SBI LIFE 17%
BAJAJ ALLIANZ HDFC LIFE KOTAK MAHINDRA ICICI PREUDENTIAL 10%
BANK OF BARODA
17% 13%
30%i.e. 9 people prefer STATE BANK OF INDIA LIFE. 10%i.e. 3 people prefer BAJAJ ALLIANZ. 13%i.e. 4 people prefer HDFC LIFE. 17%i.e. 5 people prefer KOTAK MAHINDRA and ICICI PREUDENTIAL respectively. And remaining 13%i.e. 4 people prefers BANK OF BARODA.
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Q6. How much premium do you pay quarterly?
12
11
10
9 8
5000-7000 7001-10000
6
5
5
10001-15000 15001-20000
4
2
0 5000-7000
7001-10000
10001-15000
15001-20000
11 people pay premium amounting between Rs.5000 to 7000. 9 peoples pay premium between Rs.7001 to 10000. 5 people pay premium amounting from 10001 till 20000. Every person pays the above premium quarterly.
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Q7. How much fees does your bank charge according to the services?
18 16
16
14 12 10 8
8 6
5
4 2
1
0 500-1000
1001-2500
2501-5000
5001-9000
The banks charges fees according to the services provided by they to the customers ranging from 500 to 1000, 1001-2500, 2501-5000 and 5001-9000 of which 16, 8, 5 and 1 person pays it respectively.
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Q8. Do you get appropriate information about your policies?
2
Yes
28
No
28 people that is around 93.34% gets well information about their policy whereas 2 people i.e. 6.66% are not informed or known to their policy.
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Q9. Is taking a life insurance very important?
18 16
16
14 12
12 10 8 6 4
2
2 0
Strongly Agree
Agree
Not decided
0
0
Disagree
Strongly Disagree
16 i.e. 53.33% people strongly agree in taking a life insurance policy. 12 i.e. 40% people just agree to take the life insurance policy. 2 i.e. 6.66% people have not decided rather to take life policy or not. No one disagree or strongly disagree to take the life policy. This is good sign for the insurance company that people are understand the importance of life insurance policy.
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Q10. Do you think risk coverage is as important as return from the investment?
0
Yes
No
30
All 30 people in the survey i.e. 100% think that risk coverage is as important as return form the investment.
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Q11. Do you think there is lack of interest in insurance agents? Is that a reason for less marketing of insurance products in rural areas?
14
12
12 10
10
8
7
6 4 2 0
1 0 Strong Agree
Agree
Not decided
Disagree
Strong disagree
10 people have a view that due to lack of interest in agents of insurance company is the reason for less marketing of insurance products in rural areas. 12 people agree to the same view. 7 people have not decided whether the view is correct or wrong. 1 people disagree with that statement and no one strongly disagree with the point.
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Q12. Are you satisfied with your bank, which has provided insurance service under one roof?
35 30
29
25 20 15 10 5 1 0 Yes
No
29 people which are around 96.67% are satisfied with their bank that has provided the insurance services which includes life insurance as well as general insurance. 1 person is not satisfied with the bank.
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CONCLUSION The fact that the banking operations in India, unlike in other developed countries, are still branch oriented and manually operated vis-à-vis highly mechanized and automated banking channels, viz., internet banking, ATMs, etc. are all the more conducive for flourishing of bancassurance. Regulators could explore the possibility of allowing banks having tie-up arrangements with more than one insurance company, giving wider choice for the customers. In addition to acting as distributors, banks have recognized the potential of bancassurance in India and will take equity stakes in insurance companies, in the long run Adequate training coupled with sufficient incentive system could avert the banks’ staff resistance if any. In sum, bancassurance strategy would be a ‘winwin situation’ for all the parties involved -the customer, the insurance companies and the banks. The most immediate advantage for customers is that, in insurance business the question of trust plays a greater role, especially due to the in-built requirement of a long term relationship between the insurer and the insured. 1. For banks it just acts as a means of product diversification and additional fee income 2. For insurance company it acts as a tool for increasing their market penetration and premium turnover 3. For customer it acts as a bonanza in terms of reduced price, high quality products and delivery to doorsteps The success of bancassurance greatly hinges on banks ensuring excellent customers relationship; therefore banks need to strive towards that direction. The changing mindset is cascading through the banking sector in India and this
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would be a right time for banks to resorting to bancassurance, especially in the context of proactive policy environment of regulatory authorities and the Government. It is important for an insurer to understand the merits and demerits of bancassurance channel. It helps immensely to plan the resources in accordance with the channel requirement. In other words the contractual terms etc. can be planned to maximize the channel effectiveness. Otherwise smooth functioning of bancassurance channel is difficult
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REFERENCES I.
BIBLOGRAPHY
1. Bancassurance: an emerging concept in India by NAVIN SETHI. 2. "Insurance Management", 11th Edition, by P.K.GUPTA Himalaya Publication. 3. Banking Services and information Technlogy: The Indian Experience by R.K. UPPAL 4. “Bancassurance: Taking the lead” online article by Hindu Business Line, January 2006. 5. Bancassurance- Trends and Opportunities. by V.V. RAVI KUMAR 6. Management of Indian Financial Institution by R.M. SHRIVASTAVA and DIVYA NIGAM 7. Principles and Practices of Banking 3rd edition of INDIAN INSTITUE OF BANKING AND FINANCE 8. Commercial Banking and Finance by H. RAJASHEKAR. II. 1. 2. 3. 4. 5. 6.
WEBLIOGRAPHY www.irda.gov.in www.google.com www.banknet.com www.insuremagic.com www.hdfcbank.com http://www.newindianexpress.com/business/news/LIC-Axis-Bank-ink-pactin-largest-bancassurance-deal/2016/07/29/article3551895.ece 7. Bancassurance: an emerging concept in India by Navin Sethi. 8. http://blogs.timesofindia.indiatimes.com/business/finance/ 9. http://www.bancassuranceworld.com/ 10.http://www.moneycontrol.com/news/business/tata-aia-life-citibank-enterinto-bancassurance-tie-up _1279159.html?utm_source=ref article 11.http://www.allbankingsolutions.com/Banking-Tutor/bancassurance.shtml 12.http://indianexpress.com/article/business/business-others/irda-allows-banksto-tie-up-with-nine-insurers/ 13.https://www.rbi.org.in/scripts/PublicationsView.aspx?id=9773
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